When it comes to bad credit student loan consolidation, federal loan programs are, in most cases, the best way to go. Legitimate private lenders across the board, such as banks, require good credit from their borrowers in order to ensure competitive interest rates, and most private lenders will not even consider those borrowers who have a bad or no credit history. Unlike these private lenders, the government does not seek to turn a profit from their student loan consolidations and there are several federal loan consolidation programs that do not require credit history checks.

One way borrowers who have bad or no credit history to obtain a private loan consolidation is to have a cosigner on the consolidation loan. A cosigner is someone with a good credit history, chosen by the borrower, who agrees to take responsibility for the loan obligation along with the borrower.

While loan consolidation programs differ from lender to lender, many private loan consolidation programs offer an option for the cosigner to be released from the loan obligation after a series of successful payments on the part of the borrower. This option makes the transaction a bit more attractive to potential cosigners, who may be fine with helping the borrower out for a year or two but who have no wish to be obligated over the course of several decades.

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When shopping for a private student loan consolidation, be sure to do your homework. As mentioned previously, private programs differ from lender to lender and it’s important to ask the right questions, including:

Is the interest rate fixed or variable? A fixed rate will not fluctuate with the market or the federal interest rate, remaining stable throughout the life of the loan. A variable rate may afford the borrower and cosigner to initially obtain a low interest rate on the loan, depending on the market and federal interest rates, but could easily become higher as those factors increase.

What amount of private student loan debt must the borrower already have in order to qualify for consolidation? This amount varies from lender to lender.

What fees are included in the loan consolidation? Private lenders will usually tack on fees.

Is there a penalty for early repayment of the loan consolidation? Many private lenders will have this stipulation as part of the loan consolidation agreement.

Federal Student Loan Consolidation 101

Two federal programs currently offer bad credit student loan consolidation. Borrowers may consolidate their direct loans through the Direct Consolidation Loan program; The Federal Family Education Loan Program (also known as FFELP) also offers a consolidation option.

Applicants for these programs may apply on line and must have ready their existing loan information (lenders of existing loans, account numbers, and pay offs).

Again, these loans do not require credit history checks, as they fall under the guaranteed loan program offered by the federal government.

Good to Know

Bad credit student loan consolidation at the federal level comes with some rules. These are key points every borrower should know and are as follows:

While borrowers who are married and both have existing student loans have been able to do so in the past, it is no longer possible for them to combine their existing loans under one consolidated loan.

Eligibility for federal consolidation loans is confined to those students who have already graduated, as are subsidized and unsubsidized Stafford Loans, Perkins Loans, Health Education Assistance loans, and Nursing Loans.
Interest rates on federal consolidation loans are always fixed, and are calculated by taking a weighted-average between the interest rates of the borrower’s existing loans and how much of the total debt each existing loan represents.